Bank of England: Monetary Policy Committee (Hansard, 26 February 2004)

§ The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey)
No, my Lords. In May 1997, the Monetary Policy Committee of the Bank of England was established with full operational independence to set interest rates to meet the Government's inflation target. The arrangements have worked well and have delivered a credible monetary policy framework with low and stable inflation and inflation expectations. Since May 1997, average RPIX inflation expectations have been close to 2.5 per cent. By comparison, inflation expectations averaged 4.6 per cent under the previous monetary policy framework in operation from October 1992 to May 1997. There are no plans to alter those arrangements.

§ Lord Newby
My Lords, I am grateful to the Minister for that reply. He may recall that, on 12 February, in response to a Question by the noble Lord, Lord Howell of Guildford, about remarks made by the Government's chief economic adviser about the desirability of a particular interest rate change, the Minister said: My Lords, everybody in this country is entitled to make observations about the future evolution of interest rates in this country".—[Official Report, 12/2/04; col. 1204.] Does the Minister agree that, while that is a fine rule for the generality of the population, such a rule should not apply to senior Treasury officials or Ministers? If they give their views a day or two before the MPC meets, it could be seen that they are seeking to influence the MPC decisions and to jeopardise its independence.

§ Lord McIntosh of Haringey
My Lords, I now understand on which quotation the noble Lord, Lord Newby, is seeking to get comments. He is referring to a speech by Ed Balls, the chief economic adviser, on 4 February, which was misinterpreted by the Financial Times and by Martin Weale of the National Institute of Economic and Social Research as referring to a particular meeting of the Monetary Policy Committee. It is not only my view that those 330 remarks were misinterpreted, as a week later, in presenting the Bank of England inflation statement, the Governor said: All I can say is that ever since the system was set up in 1997, there hasn't been a single instance of any advice, pressure, wish being expressed to the committee or to me. Not one, throughout that entire period. You couldn't possibly ask for more than that".

§ Lord Tomlinson
My Lords, does my noble friend agree that, if it is so important to establish independence for the Bank of England, similar standards ought to be applied to the European Central Bank relating to the stability and growth pact? Will he urge his friends, both here and elsewhere, to stop the political interference with the operation of that pact?

§ Lord McIntosh of Haringey
My Lords, that is a very subtle way in which to introduce an European element. It is almost worthy of the noble Lord, Lord Pearson of Rannoch, but I do not believe that it follows from the Question on the Order Paper.

§ Baroness Noakes
My Lords, does the Minister agree that a plausible conclusion from the fact that a senior Treasury official attends the monthly meetings of the MPC is that he is there to tell the MPC what the Chancellor wants? Will the Government, in the interests of both the actual and the perceived independence of the MPC, put a stop to that?

§ Lord McIntosh of Haringey
No, my Lords, it is not a plausible interpretation. It does not happen, and the quotation that I have just read from Mervyn King makes it clear that it does not happen. The Treasury works very well to maintain contact with, but not to interfere in, the decisions of the Monetary Policy Committee.

§ Lord Howe of Aberavon
My Lords, getting the Minister back on to this side of the Channel, would he be kind enough to acknowledge that the undoubted success of the Monetary Policy Committee has been built upon the foundations laid by my right honourable and,—in the other place—learned friend, Kenneth Clarke, in a previous administration?

§ Lord McIntosh of Haringey
My Lords, I am grateful to the noble and learned Lord, Lord Howe, for bringing us back to this side of the Channel, but I believe that I answered his question in my first Answer. The arrangements that we have had between 1997 and today have resulted in inflation expectations of approximately 2.5 per cent, which was what we wanted. The figure for the period 1992–97, which I believe is what the noble and learned Lord, Lord Howe, was referring to, was 4.6 per cent. I believe that the comparison is on our side.

§ Lord Barnett
My Lords, I congratulate my noble friend. Members of the MPC of the Bank of England appear before our Economic Affairs Committee regularly, and we on the committee are satisfied that it is truly independent, has worked well and is working well, as the Minister said. Surely, however, there is no need to apologise for the fact that it may possibly be 331 seen as if the Chancellor is seeking to influence the work of the MPC—although wrongly, as the Minister said—when the Treasury comments, or is seen to be commenting, in agreement or disagreement, on movements of interest rates. In those circumstances, would it not be better if Ed Balls did not make those kind of speeches?

§ Lord McIntosh of Haringey
My Lords, I did not hear myself apologising—maybe the noble Lord, Lord Barnett, did. I can quote exactly what Ed Balls said in his speech on 4 February. He said that, a forward-looking and pre-emptive approach to monetary policy, backed by a sound fiscal policy, is the best way to lock in stability and deliver balanced regional growth". That was in the context of a long-term view of the relationship between fiscal and monetary policy, and certainly had no relevance to the monthly decision of the Monetary Policy Committee. Therefore, even the perceptions are wrong.